Health Maintenance Organizations (HMOs) are playing a significant part in the restructuring of health care delivery in the United States. As more and more HMOs have suffered financial losses, state governments have increased their regulatory oversight activities. The primary purpose of this study is to evaluate the effects of these state regulations and changes in them on the development and evolution of local HMO markets. Theoretical models from organizational sociology will be used to generate hypotheses concerning the effects of state regulations and community characteristics on HMO entries exists, and competitive interactions. These hypotheses will be tested by applying maximum likelihood techniques to estimate model parameters, using a longitudinal data set. The data set will contain MSA level information on individual HMO characteristics; HMO entries and exits; economic and sociodemographic characteristics; medical care system characteristics; and state laws relating to HMO formation and operations. Our analysis will address the following questions: Which state-level regulations and community characteristics, if any affect the entry of HMOs? How do these effects vary depending on type of HMO, (e.g., local vs. national sponsorship, prepaid group practice vs. individual practice association? Which state-level regulations and community characteristics, if any affect the exit of HMOs? How do these effects vary depending on the type of HMO? How do state regulations and community characteristics affect a local market's competitive structure, the mix of different types of HMOs in local markets, over time? By answering these questions, we will advance current knowledge of the structure and evolution of local HMO markets and provide valuable information for use by policymakers in carrying out state regulatory oversight of these markets.